Profit Margin Calculator
Calculate profit and profit margin percentage from revenue and cost, then use the result to compare pricing, costs, and sales channels.
Profit margin
Formula
Profit = Revenue - Cost
Profit Margin = Profit / Revenue * 100 How the formula works
Profit is the dollar amount left after subtracting cost from revenue. Profit margin converts that dollar amount into a percentage of revenue, so it is easier to compare different products, projects, or time periods.
The denominator is revenue, not cost. If you divide profit by cost, you are calculating markup instead of margin.
Complete example
A shop sells a product line for $10,000 in total revenue. The product cost, packaging, and payment fees total $6,500.
- Revenue: $10,000
- Cost: $6,500
- Profit: $10,000 - $6,500 = $3,500
- Profit margin: $3,500 / $10,000 * 100 = 35%
This means the business keeps $0.35 as profit from each $1.00 of revenue before any costs not included in the input.
For a step-by-step explanation, read how to calculate profit margin.
When to use this calculator
- Check whether a product, service, or project is profitable.
- Compare margins before and after a price change.
- Review whether discounts, fees, or shipping costs are reducing profit.
- Measure gross margin when revenue and direct cost are already known.
How to interpret the results
A higher margin usually means more room to cover overhead, marketing, taxes, and profit goals. A low margin can still work in high-volume businesses, but it leaves less room for mistakes, refunds, and rising costs.
If the margin is negative, the cost entered is higher than revenue. That usually means the price is too low, the cost input is too broad, or the business is intentionally selling at a loss for a specific reason.
Common mistakes
- Using cost as the denominator. That calculates markup, not margin.
- Mixing gross cost with operating expenses without labeling the assumption.
- Ignoring negative margin when costs are higher than revenue.
- Leaving out platform fees, payment fees, shipping losses, or return allowances.
- Comparing margins across products when the cost inputs are not defined the same way.
Related tools
- Markup Calculator: work from cost and markup to selling price.
- Gross Profit Calculator: calculate gross profit from revenue and COGS.
- Discount Margin Calculator: see what a promotion does to margin.
- Ecommerce Profit Calculator: include shipping, fees, ads, and returns.
FAQ
What is profit margin?
Profit margin is the percentage of revenue left after costs are subtracted. It shows how much profit a business keeps from each dollar of sales.
How do you calculate profit margin?
Subtract cost from revenue to get profit, then divide profit by revenue and multiply by 100.
What numbers should I enter as cost?
Use the cost scope you want to measure. For gross margin, enter cost of goods sold. For a broader operating view, include additional direct costs and label the result clearly.
What is a good profit margin?
A good margin depends on the industry, pricing model, sales channel, and cost structure. Compare margin against similar products or past performance rather than using one universal benchmark.
Can profit margin be negative?
Yes. If cost is higher than revenue, profit is negative and the margin will also be negative.
Is profit margin the same as markup?
No. Margin divides profit by selling price or revenue. Markup divides profit by cost.
Should shipping and payment fees be included?
Include them when they are real costs tied to the sale. If you exclude them, the result may look better than the cash you actually keep.
Can I use this for services?
Yes. For services, revenue is what you charge and cost can include contractor labor, software, materials, payment fees, or other direct delivery costs.
Disclaimer
This calculator is for general business planning and educational use. It does not replace accounting, tax, or financial advice.